Q1 2020 Earnings Call
This call is being recorded or rebroadcast and all participants are in listen only mode. At this time.
Before the conference call begins I remind you that all statements in the presentation other than historical facts are forward looking statements that involve risks and uncertainties that are subject to change at any time.
Such statements are based on management's expectations at the time they are made in.
In addition to the assumptions and other factors referred to in connection with the statements factors described in double you easy Energy group latest form 10-K, and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated.
During the discussions referenced earnings per share will be based on diluted earnings per share unless otherwise noted.
After the presentation the conference will be open to analysts for questions and answers.
Conjunction with this call pocket of detailed financial information is posted a double you see energy group Dot com.
A replay will be available approximately two hours after the conclusion of this call.
And now it is my pleasure to introduce Gil Capa executive Chairman of double you see energy group.
Good afternoon, everyone. Thank you for joining us today as we review our results for the opening quarter 2020, I certainly hope that you and your families are all doing well and staying healthy.
First I'd like to introduce the members of our management team around the coal with me today, we have Kevin Fletcher, President and CEO and Scott Lauber, our Chief Financial Officer.
No as you saw from our news release. This morning, we reported first quarter 2020 earnings of $1.43 cents a share a strong performance despite lower natural gas demand during a mild first quarter.
The result, underscores our focus on operating efficiently and executing our capital investment plan, Scott will discuss our metrics in more detail a bit later on the coal.
Of course, as we plan for the long term success of our company. We're also focused on providing a central surplus dropped to cope with 19 pandemic as you would expect the health of our employees and communities.
And our top priority, we've adopted numerous measures to minimize health risks and still with our employees the importance of following the CDC guidelines.
Stay at home orders as many of you know were issued across our four states in late March keep in mind that the full effect to the virus hit, Wisconsin, and Illinois relatively late.
Just had parts of Michigan or outside of our surface area.
And that timing, we saw only minimal impact from a pandemic on our first quarter results.
I would also like to point out that we took action to further control costs, even before the virus struck.
The first quarter happened to be one of the warmest on record in the past century, what we saw a mild weather at the beginning of January we set the wheels in motion to reduce expenses in areas of our business that would not affect safety.
Hi ability or customer satisfaction.
That's stepping back as we look more broadly at our business mix approximately 38% of our pre tax margin for the full year comes from our natural gas delivery business across our four state area.
Also a third of our earnings for the full year typically come in the first quarter.
So with a strong start to the year. We're about is well positioned as we can be to deal with the uncertainties ahead.
Many of you also asked about the status of the major economic development projects that have been announced in our region.
The short answer is rock gone.
A good example is the high Tech campus that Foxconn is building south of Milwaukee.
Six fabrication plant for LCD panels is fully them close now an internal build out is underway.
Smart manufacturing facility is also taking shape.
Production of components for enterprise servers, and racks expected to begin in the fourth quarter of this year.
In addition, external structure for Foxgloves network Operation Center is being erected as we speak.
And to help quite dependent.
Oxycontin Medtronic what else at Fox gone will produce a line of Medtronic ventilators Interstate starting this summer.
Obviously, we're keeping a close eye on local economic trends and customer demand for energy.
But what we're seeing today I do not expect any the ammunition at our long term earnings growth rate of 5% to 7% a year.
Minor adjustments are 15 billion dollar capital plan remains on track.
I'd like to highlight one area that capital plan that is progressing well ahead of schedule, that's our energy infrastructure segment.
You may have seen the announcement that we're increasing our ownership interest from 80% to 90%.
Blooming Grove finger head in upstream wind farms.
Pending all regulatory approvals, we plan to invest another $118 billion for an additional 75 megawatts of capacity.
Folks for our infrastructure segment, we've now committed over 40% of the total and our five year plan. That's planned just began in January.
In short our overall capital plan is low risk can hardly executable, we have ample liquidity no need issue new equity in fact, our available liquidity at the end of April has risen to $2.6 billion.
And finally I'd like to cover one other positive development from the first quarter.
Just a few weeks ago, we announced the next important steps in our succession planning process.
We're very pleased with Scott Lauber will become our Chief operating officer effective June one.
In his new role Scott will have senior oversight responsibility for power generation like infrastructure and fuels information technology supply chain supplier diversity and major projects.
He also will be named President of Michigan gas utilities in Minnesota Energy resources and he will continue to serve as he has.
As a member of the office of the chair.
We're also welcoming as you have heard a new addition to the team shall we will be joining the company is our new Chief Financial Officer effective June one.
I'm sure you know Ashar. Most recently served in the same capacity at Centerpoint energy.
Sure brings a tremendous amount of depth good experience to the new role. She began her industry career at southern company as a financial analysts back in 1998.
During her career. She also served as the Chief financial Officer of to Southern Company subsidiaries Gulf Power, and Georgia power and as the senior Vice President Finance and Treasurer for Southern company.
I will also be a member of our office of the chair.
As new appointments will bring additional depth and experience to an already strong leadership team a team that as you know has delivered exceptional results over many many years now I'll turn the call over to Kevin for details on our first quarter operations given all yours.
I could Gil I'd like to start by highlighting the work about dedicated employees, who are providing safe and reliable service throughout this helped crisis, we got sharply curtailed work inside customers' homes and 80% of our employees were now working remotely or in the field.
Our employees are adapting to these changes using technology following helped precautions and continuing to work efficiently.
The remote work this make in our company safer would not have been possible well thought out recent technology investments.
Although we still have a long road ahead of us I'm encouraged by the processes and procedures, we have put in place across our companies.
Our incident management team and occupational health and support services employees have been instrumental in executing our business continuity plan and developing new processes to address changing conditions.
We're working hard to support our customers through this crisis and I'm grateful that we've also been able to contribute to our foundations to organizations on the front lines, including local United ways hospitals domestic violence shelters food pantries and you'd programs.
Are these donations and matching gifts were providing more than $2 million to covert 19 relief efforts.
It's our way of thinking to people and organizations the staying in our communities.
Despite these challenges we continue to make progress on key initiatives.
Importantly, we have no active rate cases at this time, which is a real positive and our current environment.
As you might know the pandemic has made it necessary to stop Disconnections in place a moratorium on new late payment charges for customers.
Regulators have been supported and we're working through the specific mechanisms for future recovery.
In Wisconsin Public Service Commission has made it clear that were authorized to defer foregone late payment charges uncollectible expense and incremental pandemic related costs.
To be clear this covers all related expenses in our residential as well as our commercial and industrial sectors.
Turning now to our projects, we're on track to add utility scale solar generation to our portfolio.
You may recall that we have already broken ground on two solar projects for Wisconsin Public service, which will provide us with 200 megawatts of capacity.
Our two creek solar project remains on time to begin producing energy by the end of this year.
Our Badger hollow once total project is experiencing a modest delay, but we'll continue to aren't allowance for funds used during construction and we expect it to be operational by the end of April 2021 in time for the MISO capacity auction.
In February the public service Commission of Wisconsin approved our investment in Badger Hollow too.
Once complete the solar part will provide we energy's with 100 megawatts of renewable capacity.
We expect to invest $130 million in this project.
And I'm sure that many of you have heard that the Democratic National Convention has moved from July to August.
We completed a thorough review of our network in preparation for the potential influx of delegates and overall were very good shape.
And with that I'll turn it back to Gale.
Kevin Thank you very much.
As we looked at the remainder of the year our earnings guidance for 2020 stands at $3.71 to $3.75 a share as I mentioned earlier, our actions today that put us in a very good position to achieve those results. So today, we are reaffirming our guidance for 2020 again, our guidance stands a three day.
Or 71 cents to $3.75 a share also a quick reminder, about our dividend in January our board of directors declared a quarterly cash dividend of 63 in a quarter sense a share that's an increase of 7.2% over the previous quarterly rate.
We continue to target a payout ratio as we've mentioned often of 65, the 70% of earnings or the middle that range right. Now so I expect our dividend growth will continue to be in line with the growth in our earnings per share.
Now with details on our first quarter results and more information on our outlook for the remainder of 2020 years, our CFO and about the B C O Scott Lauber Scott. Thank you Gill.
Our 2021st quarter earnings of $1.43 cents per share increased 10 cents per share compared to the first quarter of 2019.
This result was driven by our continued emphasis on cost control a modest rate increase at her Wisconsin utilities and additional capital investment.
We estimate that the mild winter weather conditions accounted for a 10 cents drag on the first quarter earnings compared to last year.
The earnings packet based on our website. This morning includes a comparison of the first quarter 2020 in 2019 results I'll first focus and operating income by segment and then other income interest expense and income taxes.
Referring to page eight of the earnings back at our consolidated operating income for the first quarter of 2020 was $627 billion compared to operating income of $543 million in the first quarter of 2019, an increase of $84 million.
After adjusting for the impact of 2019 tax preparers operating income increased by $43 million.
By segment up gate will focus on the remaining 43 million dollar increase in operating income, which excludes the 2019 tax repair benefit.
And it Wisconsin segment adjusted operating income increased $25 million. This was driven by several factors first operating and maintenance expense decreased $41 million largely due to savings from the retirement of the Presque Isle power plant a year ago.
Additional cost control measures and lower benefit cost second or Wisconsin segment margins were $5.8 million lower this factored into our recent rate order as well as positive fuel recovery.
These positive drivers were more than offset by $41.2 billion negative weather variants and finally depreciation expense increased $8.1 million as we continue to execute on our capital plan.
In Illinois operating income increased $23.7 million, driven by 19.7 million dollar decrease in operating and maintenance expense net of riders.
This is driven by lower repair and maintenance work due to milder winter temperatures lower benefit cost and cost control.
Operating income at our other state segment decreased $4.1 million due to the mild first quarter.
Turning now to our energy infrastructure segment.
Operating income at this segment was down $1.2 million as expected Bishop Hill upstream and Coyote Ridge did not provide immaterial impact on operating income recall that a significant portion of earnings from these wind farms come in the form a production tax credits, which I recognized as an offer.
Set to income tax expense with Coyote rich coming on line late last year fees production tax credits contributed approximately three cents per share to our earnings in the first quarter of 2020 compared to two cents into first quarter of 2019.
Combining these changes in excluding the impact of 2019 tax repairs operating income increased $43 million.
Earnings Foreign investment in American transmission company totaled $39.8 million, an increase of $3.7 million higher earnings were driven by continued capital investment.
Recall that our investment is no, earning a return on equity of 10.38%.
This is per the November 2019 for rule.
Other income net decreased by $25.3 million, mainly driven by investment losses related to our deferred benefit plans. These investment losses were partially offset the lower benefit expense noted in our operating segments.
Interest expense increased $5 million, primarily driven by incremental long term debt issuances at the subsidiary level to fund our capital investment program.
Our consolidated income tax expense net of to the 2019 tax preparers decreased $15.7 million lower tax expense was driven by the positive tax effective refunding unprotected tax benefits following our recent Wisconsin rate decision.
This year, we expect our effective income tax rate to be between 16 and 17%.
Excluding the flow back of the unprotected benefits, we expect our 2020 effective tax rate to be between 20% and 21%.
Currently we expect to be modest taxpayer in 2020, our projections show there will be able to efficiently utilize our tax position with our current capital plan.
At this at this time I'd like to address our sales and earnings forecast for the balance of 2020 basis found what we have seen in April we are adjusting our 2020 sales forecasts specifically on the electric side, our forecast now assumes a 4% increase in residential sales volumes.
In the second quarter trending to an increase of one half of 1% by the fourth quarter for small commercial industrial customers. We are suing assuming an 8% reduction in the second quarter trending to a reduction of 3% by the fourth quarter and finally for our large commercial industrial customers.
We are assuming an 18% reduction in the second quarter trending to a reduction of 7% or the fourth quarter.
Overall based on these assumptions we are forecasting the total retail electric volumes, excluding the iron ore mine to decreased by approximately 5% for the remaining nine months compared to our original forecast.
These revised volumes translate to a reduction of approximately $70 million to $80 million in pre tax margin for the year.
We believe that we have the ability to absorb this margin compression to temporary initiatives as well as multiple cost savings and efficiency measures across the enterprise as Bill stated earlier these initiatives will not compromise or commitment to safety reliability and customer satisfaction.
So we're confident in reaffirming our annual guidance $3.71 to $3.75 per share.
Given that the stay at home orders are still in place in our region, we're providing second quarter 2020 guidance of 58 cents per share to 62 cents per share.
This assumes normal weather for the rest of the quarter in last year's second quarter. We earned 74 cents per share Weve, obviously projected declining sales volumes and there are timing differences related to fuel cost recovery with that ill turn things back to Gail Scott. Thank you very much overall, we're on track and focused on delivering.
Value for our customers and our stockholders operator, we're ready now to open it up for the question and answer portion of the call.
Thank you now we will take your questions. The question and answer session will be conducted electronically to ask a question. Please press the star Keith followed by the digit one on your phone. If you are using a speaker phone turn off your mute function to allow your signal to reach our equipment.
We will take as many questions as time permits once again press Star and then one on your phone to ask a question.
Your first question comes from shopper as that with Guggenheim Partners. Your line is open.
Rock'n'roll Shire, how are you today, Oh, not too bad how you go and yeah, we're hunkered down doing well.
That's great to hear that straight to him. So couple of questions. No you touched on this a bit in your prepared remarks scale, but can you give us a little bit more color at a high level, how you're sort of thinking about the duration of the downturn right are you how long we thinking.
Coverage is going to take and maybe just talk about a little bit about the sustainability of your leverage. This downturn is more per truck protracted right. So any risk to the 5% growth any capex opportunities that become maybe secondary nature is downturn is more project is in Europe, you own internal.
Assumptions.
Well great question Ashar, Let me first say that that I think we have been appropriately conservative in terms of our view of how quick recovery might take place and what the extent of the recovery would be in the near term.
Scott covered whether you are base assumptions in terms of sales declines.
My sense is that yes.
Within the region, we can get the economy restarted by June.
That things will evolve in fits and starts.
As as I mean, clearly as you know two thirds of the economy is driven by consumer demand.
I think the real question for everybody is how confident will the consumer b.
And going back to their semi normal buying patterns.
Having said all of that I mean, I think were appropriately conservative in terms of what we expect to happen do our electric and gas sales volumes.
We're confident in our levers and in the dozens and dozens of initiatives that we have across the enterprise.
Become even more efficient we're learning things here as 80% of our workforce is operating remotely. If you will so we feel very good about about our ability to to drive additional efficiency and cost reductions throughout the business.
And we are prepared obviously to to pivot either way if the recovery is quicker.
Then that's that's all of the benefit but I think we've been appropriately conservative in terms of the capital plan.
When you think about the elements of our capital plan. There are really all about reliability. So I don't see any any really need or or or for that matter I assume you see the need to continue with that capital plan focused on unreliability and improve customer service.
The infrastructure segment.
We'll be unaffected.
[music].
So I can tell so long story short, we really don't see any threat right now to our long term earnings growth rate projection of 5% to 7% of year I hope share that responds.
No. It doesn't that just wanted to confirm that in your view Conservative Denver is always comes to light you. Thank you for that.
Let me just since you touched on the infrastructure segment are you seeing you know this economic dislocation short of is it driving any new opportunities in that segment. I mean, you are well ahead of filling that capital budget or any development spacing any cash crunchers people looking to get out of projects, especially.
Given you have an app.
Obviously advantage would your tax appetite. So can can you have a conscious effect, where the what you're seeing in the economy actually play into the hands of your of that segment.
I would say, it's a little too early to give you a definitive answer but the early indications are yes, there will be some additional high quality projects and remember we are very particular about the kind of projects were willing to take on in the infrastructure segment, but I would say that given the sharp contraction in the economy.
Given the fact that some some folks obviously need cash I think we're going to see more opportunity we will be very selective, though as we work through that opportunity, but I do think there will be I do think there will be additional projects that we will take a hard look at.
Got it and then just lastly.
Can you just remind us if HTC receives a transco adder and if so do you have any thoughts you had on the recent perks no proposal to remove it is as we kind of understand it would be kind of a wash the increase the RTL membership added by 50.
So how are we sort of thinking about this correctly.
I think so although I believe that one of the proposals and Scott and Kevin can Echo me on this I think one of the proposals as for there to be a 100 basis points adder for our to your participation right now.
Essentially.
He is getting a 50 basis points better so there's a possibility there Scott I think of another 50 basis points in the mix, Yes, that's exactly correct there from what I'm reading right now so there's potential there.
Got it thanks, so much guys and congrats Scott and Sean you Bowls and I'm sure Shaw, we'll get a little bit more rest at night work.
So congrats guys [laughter]. Thank you HR I'm a night also don't count on that.
I know that you guys congrats.
Thank you.
Your next question comes from Durgesh Chopra with Evercore ISI. Your line is open.
Greetings Turkish how you doing.
Hey, good morning, Gail I didn't great. Good afternoon, rather thanks for taking my question I actually have the two into the weeds question, So I'll apologize upfront.
First one.
On the is I understand I see the 13 and a half million in Wisconsin segment on slide eight that is that 13, and a half million declining oil.
Fuel savings as I understand it you would love to attain roughly 15 million, what's since you're always them on any fuel savings that that you might have can you just comment on what of that 15 million. If any have you utilizing the first quarter.
I think virtually all of it because of the timing of fuel recoveries golf correct. Correct. This is a 13 and a half million better in the first quarter.
And once again, it's a lot of it due to the timing of the fuel recoveries.
As you recall historically, there that theres a patterns of the fuel recoveries at.
Wisconsin Electric that you usually over collected the first and second quarters under collected in the third and then swings back in the fourth quarter and we just really had some positive fuel recoveries with the price of natural gas and operating expense our operating.
Fuel cost in the first quarter. So we're ahead of the plan in this first quarter, specifically compared to last year and compared to our original guidance that we set.
So durgesh what that really means as you won't see as big a pickup in Q2, because weve really eating the full amount.
Into Q1, because of again of the timing and the collapse of oil and gas prices exactly got it got it that's what I thought and then just maybe Scott the any additional color on the other OEM category, the 22.3 million what does that.
Made up off and how's that tracking perhaps versus your original guidance.
Yes, so the other on in what we did as we broke it out because we've talked about this before the offset of some of that deferred compensation is in the Rabbi Trust. So this will nm is really the day to day savings that we're seeing from the multitude of operating savings across the footprint and this is specifically.
What is related to the majority of its what related to Wisconsin segment, and there's more in Illinois and the smaller utilities also so that's the day to day stuff.
Okay perfect. Thank you Scott in congratulations.
Thank you thank you to crash.
Your next question comes from Julien Dumoulin Smith with Bank of America. Your line is open.
Greetings Julien.
Good afternoon. Appreciate you guys, taking the time.
Let me take this as a couple of clarifications commentary and pets.
The step forward.
When you're thinking about the cost reductions offset.
You talked about 70 million.
Have a pre tax here, how do you see an ability that into 21 and then subsequently how do you think about this meshing into the regulatory.
Office at large in Wisconsin.
I'll leave it open ended is why would you be interpreted.
Okay.
Well in terms of sustainability.
Let me just go back and talk for a second about our track record.
As you may recall.
Our day to day, what we call our day to day operation and maintenance costs.
We reduce those by 7.3% in 2019 over 2018.
Our forecast and plan for this year was an additional 2% to 3% reduction over and above what we achieved in 2019 and now we have put in as we mentioned I mean literally hundreds of measures across the enterprise.
We're learning some things here.
In terms of additional possibilities for long term sustainable cost reduction through what we've been forced to operate.
Through the pandemic here so costs I believe are going to come down I would just point to our track record of sustainable cost reductions to give you some confidence that a big chunk of what we're seeing here I think we'll be sustainable.
And of course that not only benefits.
Of the efficiency on the operation of the business, but also over the long term benefits customers.
Because it takes pressure off.
Pressure off off retail rates.
Allows us to continue without pressure on retail rates the kinds of important reliability investments that we're making it our $15 billion capital plan.
Kevin Scott anything else you'd like to add.
So that.
Yeah. This is Kevin let me first say I'm extremely proud of what our employees are doing in how they've rally. During this so at this co bit virus epidemic, but and give you just mentioned that we're looking at day in and out what we can do to be more effective and more efficient and we're finding a lot of those opportunities.
And as you set up I believe they will be sustainable as we move forward.
Thank you Kevin.
Got it actually and then if I can follow up just quickly strategically I know you talked about.
Structure opportunities moment ago, but how do you think about the landscape today as it stands we've heard folks kind of backing away.
Broadly from strategic opportunity given the backdrop of late but obviously.
In a lot of gyrations in relative valuations et cetera, how do you think about the opportunity to do that.
More holistic went beyond knots infrastructure.
So you're specifically asking about Julian opportunities in the infrastructure segment.
I was thinking beyond that really I know you just made comments about.
Set of opportunities on the infrastructure side, but I'm thinking strategically beyond that corporate level.
Well good question and I think the answer will be boringly repetitive because we have a set of criteria. As you know that we used to look at any potential strategic or in or acquisition opportunity and I'll just repeat them quickly. So we put everybody to sleep, but these are important.
At least in my judgment.
Following these criteria.
Our sector in our industry I think if you can follow these criteria and actually execute on them I think you create shareholder value. If you don't that I I think the story again, so little bit more money. So our really set in stone criteria are we would have to believe that anything we would acquire would be accretive in the first full year.
After closing.
We're not going to trash the balance sheet to do it we've worked very hard to have one of the strongest balance sheets of the industry and we're not going to make something accretive by trashing the balance sheet, and then thirdly, and I think Julian this would be the gating up the gating question right now as we look at the landscape.
We'd have to believe that the growth rate of anything that we would acquire would have to be as strong as our own organic growth rate or stronger read that 5% to 7% earnings per share growth a year that right now would be I think the biggest gating question for us as we look at anything around the landscape.
In response to your question.
Absolutely thanks, guys.
Well.
Thank you.
Your next question comes from Steve Fleishman with Wolfe Research Your line is open.
Hey, Steve.
Hey, guys good afternoon.
Just maybe a little bit more color on sales, particularly if you have data for the month of April as what it overall sales do and by class. So we haven't idea.
[noise] larger let me try to.
Yep.
Let us we do have April data happy to share it with you.
Last time, we chat I met last time, we chatted I mentioned to you that we're also looking day to day at the MISO Midwest operator data for the 14 states in the broad middle swath of the country.
So if you look at from March 24th which was the date of the announcement of the stay at home order in Wisconsin.
Through may two.
Basically.
Kilowatt hours send out in the MISO footprint was down just over 8%.
We've consistently day to day done a little bit better than that linked through the same dates March 24 through may two were down or right around 7%.
So we've consistently done day in day out a bit better than what we're seeing across the MISO footprint.
And we are seeing an uptick pretty significantly in residential usage, Scott would you like to talk about that.
So we are looking at our residential usage and like we've done before we track or tire system at our large customers and residential.
Using our automatic meter reading and really looking at the data.
We are seeing anywhere to at least 5%.
Plus than some weeks on the residential usage. So we put our forecast together looking at 4% is more of a realistic estimate to be a little conservative and as you go through the customer classes.
The large commercial and customers that we look at and we track as you know the 17 major segments that were looking at in our area and we get reports weekly on it and we're seeing in between 16 and 18% down there and that's what we factored into our.
Our guidance here in the second second quarter and then the third segment is really that small commercial area.
That we're seeing down probably about 6% to 8%. So that's how we factored in.
Okay.
Great that was it for me appreciate it.
You're welcome Steve Thank you.
Your next question comes from Michael Weinstein with Credit Suisse. Your line is open.
Meetings, Michael how are you today.
Okay. Thank you very much.
Bachelor's and Scott.
Thank you well.
Hey.
On the million dollar reduction in sales based on second quarter.
And then things getting better throughout the year.
Can you kind of ballpark, where things might be let's say the second quarter turns out to the whole year turns out to be the second quarter.
Yeah.
Some kind of reductions.
We are scarce.
We're doing a little meatball math here as we as we as we think about responding appropriately to your question. Yes, you. So if you would take that second quarter trended out.
In carry the whole year, you know that may be another 10 to 15 million.
In dollars and that's the ballpark number we've been thinking about here if that would be the the case scenario I mean once again, we're seeing things start up and then kind of go back down and we anticipate as the stay at home orders start to open up we'll see some movement here.
But we were.
We do have those kind of bookings here and we're watching it every day.
I think Scott is exactly right if as we've done our sensitivities.
Even if the second quarter became the third quarter in the fourth quarter I think we're still under 100 million in terms of pre tax margin loss.
Since the summer time has already been factored in.
Yes, yes, absolutely.
Right and.
Yeah.
Does that apply to both electric and gas customers and not the gas would be much on factor.
Just curious if it's only electric.
Yeah, no we factored in both gas and electric I would remind you though.
The second and third quarters for for gas deliveries are very minimal our big quarters, obviously are the heating seasons. So Q1 in Q4.
For natural gas, but we have factored in and again I mean, our natural gas deliveries were largely unaffected by the pandemic in Q1, but we have factored in some reduction in Q4, assuming the world is not back to total normal for gas deliveries.
Gail.
I would add to that in my prepared remarks that we still are expecting the Democratic National Convention to come here and if it does.
In the markets open up then that will be a lot of kilowatt hour usage during that summer period, as well, which will help.
Hey.
I just.
Heard something about regulatory treatments or goals.
Teen expenses.
Right now.
Residential escrow accounting in Wisconsin.
[music].
So at least for bad debt is there any are there any other mechanisms being discussed are contemplated at this point.
Yes.
First of all.
The Wisconsin Commission was the first in the country.
So basically set up a regulatory mechanism, we're being asked all the Wisconsin utilities are being asked to track and defer direct additional expenses related to response to the covert pandemic number one number two since we've all agreed not to disconnect any customers during the pandemic.
We're going to be allowed to defer and track for future potential recovery.
Any late fees that we cannot levy.
And resulting bad debt.
But as you say from Wisconsin, we already have escrow accounting for residential bad debt.
When you pump to Illinois, there's a docket underway right now in fact, there are kind of their dockets really underway in each of the four states.
For this along would probably be Illinois.
We're again no disconnects.
No late no new late fee payments.
And the and the commission there is going to ramp up that docket.
Sometime in the next few weeks.
So, but I would remind you.
We are de coupled in its natural gas delivery only in Illinois, and we are de coupled in Illinois. So thats, obviously helpful. As well Scott I think they have and in Illinois also there was already in place collection of a bad debt expense for both residential and commercial industrial in own in Illinois. So that's already in place.
There's a bill rider that's historically been in place there.
Hey, just curiosity Amazon.
Incentive warehouse.
Got started up recently just in time.
That is that seeing any kind of ramped up activity that.
My senior.
Any plans for doing something more there.
A matter of fact, yes, there's another site that Amazon is looking at right now in one of the suburbs.
That would be their site for same day delivery.
Thats going through a siting and approval process right now, but it's an existing warehouse.
So.
My understanding is it's about 400000 square feet.
Yes, Amazon is.
Actively looking at potential expansion here as well.
[music].
Thank you very much.
You're welcome. Thank you. Thank you.
Your next question comes from Andrew Weisel with Scotiabank. Your line is open.
Greetings, Andrew how are you today.
Hey, everyone. Good how are you guys.
We are good.
At first a question for Gail what would you say the odds are of the NVCA resuming the season.
Great question.
Here's what I can tell you.
The league very much wants to resume.
They've talked about even potentially restarting a part of the season as late as the August.
I think theres, a very strong desire on behalf of the leads you in some way shape or form get to a meaningful play off.
Now, having said that my own personal guess is if that does happen it would be a broadcast only of up without without fans of those fabs.
But if I were a bidding man I would say odds are better than 50 50, there'll be some resumption of the current and be a season, even if it means a delay in starting the next season.
All right I hope so as much as I look reading that utilities I do Miss sports.
Yeah No question, if you're if you're a partial owner the bucks and they win the championship you might get arena this would be pretty cool.
[laughter].
All right to next question.
The first quarter, whether I see the earnings packet shows a roughly $45 million year over year, what would that be versus normal.
It was about.
Oh gosh is about seven cents, yeah compared to normal so about 28 $29 million Yep 20 to 30 million yet.
Okay. So.
In terms of the cost savings you mentioned, you're going to start to look for some stuff. We started to look in January you are seeing roughly 70 to 80 million from the Corona virus and roughly 30 million from weather versus normal is that right and that compares to your guidance of 2% to 3%, which would be roughly 25 to 35 million did they get those numbers.
Right.
Yeah, you're in the ballpark absolutely.
Okay great.
Dan can you going back as you guys have generally been there for quite some time can you go back in 2008, 2009, and remind us of how much you were able to identify as far as.
Incremental cost savings during that downturn.
Oh good Lord.
Are you trying to say Andrew we're all that is that was my question I'm, saying your consistent.
Well I don't remember the specific number I know one m. savings, but I can tell you. This.
Industrial energy usage during 2009 dropped by 10%.
Compared to 2008, so we had we have and small commercial and industrial got devastated as well.
There was no real uptick like we're seeing now in residential so I would say actually based on our own nine experience in my memory of what we had to accomplish in terms of in terms of.
Cost reductions and additional efficiency in our nine was was probably as greater greater than what we're looking at potentially today Scott.
Yeah, no Gail you're exactly right and Oh, United Little different different period, there, but once again, we executed and we achieved a earnings guidance and we earned returns in our utilities.
I think a part of this is.
Our general operating philosophy, I mean when you.
When you focus as a mantra and as a management focus day in day out on the fundamentals and executing the fundamentals as efficiently as you can it really gives you good insight into where you can where are you can drive additional reductions additional cost control additional efficiency, both short term and long term.
I think one of one of the factors that I would site as our for our success.
It's really.
Every day.
We try to get better at the fundamentals of our business and that's really the focus of what what our operating teams do everyday so I think thats.
Well, that's a big factor understanding.
Exactly what's driving your costs and understanding exactly not just top down but bottom up as well on how we can get better every day.
Okay, Great and then one last one if I may on liquidity I believe you said 2.6 billion as a few days ago, that's up quite a bit from end of March through year end can you remind us what you've done to bolster that and the way you see the world today do you think you're done in terms of capital raises for the year.
Scott will let you handle that one.
So actually.
The cash flow has been it's been positive so far and we did issue a small debt at our small utilities, but 110 million that help with the liquidity.
Overall, Berken EMD, you and total was $110 million.
So we will still have some issuances the remaining of the year as we look at financing now that we have multiple items at the infrastructure segment will be looking at that and also potentially some holding company debt. So we're evaluating it right now and looking at the timing, but the rates are coming down a little so that looks good.
Good.
But right now the additional liquidity was good cash flow into additional debt at a at the smaller utilities.
Great. Thank you very much you're welcome.
Your next question comes from Jeremy Tonet with Jpmorgan. Your line is open.
Jeremy how are you.
Good thanks for having me.
Nice Manhattan.
[laughter] I think you touched on industrial.
And specifically foxconn activity at the start of the call here, but just wondering if you could share any more color on current and expected industrial activity going forward here in I guess, if you see the potential for any lingering impacts from the whole call they'd 19 situation on post 2020 industrial level.
Well the honest answer is.
We don't know.
We've been until we see how we consumer.
Comes out of this shutdown of the economy.
It's really almost impossible to tell overall, but having said that every one of the major economic development expansion projects that we've announced in the last two years are as I mentioned with Foxconn is a good example, our rocking and rolling and going forward with the same commitment in fact, one of the and I won't mention their names.
It's not public yet, but one of the one of the major announcements we've made.
Economic development front about about a year and a half ago. We've just learn the footprint is gonna be even larger.
So.
It's one of the reasons why don't see a diminishing in our long term growth rate, we've got major capital projects on the way and I and I will tell you.
Terms of customer growth customer expansion.
I will tell you.
The more optimistic or even more optimistic side I really believe that.
We're going to see are reshaping of the supply chains.
With much more productivity and much more production coming into the US I think one of the lessons that everybody is learned is nothing against China, but we can't be dependent on Chinese production for all of the antibiotics that are prescribed in the U.S. or the great majority of them I think you're going to see are reshaping.
The supply chain again with more production coming in the U.S. over the next few years.
In Wisconsin will be particularly well suited to take advantage of that in my view.
That's a that's very helpful. Thanks, and just one more if I could.
Just wondering if you see.
Hi, good impacting the timing of pipe replacement, Illinois kind of both from a rate increase perspective, and economic development perspective.
Well I will say this given the the.
Stay at home orders.
We have shifted a little bit in Illinois, some of the pipe replacement work and actually two very much to our benefit and customers benefit.
So the plan was to really upgrade the piping systems in a number of neighborhoods starting in the first quarter.
Although the Chicago loop is deserted.
We're able to we were able to get some permits to do work we would've done at a later time.
But was on the schedule in the Chicago loop, we are far more productive with that work than you can possibly imagine because there is simply no traffic and nothing to disrupt the timing of the work so from the standpoint of actually being even more efficient and getting some work done that eventually absolutely had to be done in the Chicago loop.
The pandemic is actually there's actually been helpful to us in terms of shifting that work. It is slowing down obviously some of the worked in the neighborhoods.
We're really pleased that we've been able to get a real leg up working the loop.
And Scott anything to add to that.
Again, I would add it made the it makes sense given me Scott for doing so because as you just mentioned.
Moving away from the neighborhood some allowed us to not have as much interaction with going inside.
The homes because in the in addition to the pipe replacement. We're also moving meters from inside outside so with the Cobot 19, we made a decision to minimize that and focus attention, where we could be more productive as you just mentioned.
That's very helpful color. Thank you.
You're welcome.
Your next question comes from Michael Lapides with Goldman Sachs. Your line is open.
Got it thank you protect halo and glad to hear you and your family are all well. Thank you for Uh Huh.
Thanks for taking my question and congrats Scott again on his new role within the company's leadership team.
Hey, Michael Michael Do you think you think we got to give them arrays.
On down in Internet, absolutely not in this environment, maybe five or seven years from now we'll talk I appreciate that thank you very much.
I wanted to hear.
Hey.
Alright ill talk about demand and the revenue impact being around 75 million or so and that just want to make sure I'm thinking about puts and takes so in Wisconsin, yet 22 million of overhead benefit in Illinois, you had almost 20, so call. It 42 million total so you're kinda half more.
Halfway down to the OEM cost reductions that would offset that demand weakness are you, saying that that's all the OEM you would take out or are you, saying that we got even more than that because that's what's the original plan already.
Great question, and let's back up for a minute remember our initial plan.
Embedded in our in our earnings guidance and our forecast for the year was a reduction in all of them of 2% to 3%.
So some of what you're quoting for Q1 results really was part of the plan.
So when you look at what we're talking about here with the 70 to 80 million projection for our base case in terms of pre tax margin reduction.
And offsets that we expect to achieved through on M. savings, that's over and above the 2% to 3% Scott, Yes, that's exactly right. So.
Yes, we had a great.
First quarter, Ireland, M. control and that was really needed to offset some of the weather that we had but the on them for.
For the rest of the year, we're going to be continued to take cost out as we talked about to achieve that.
Got it so I guess my question is.
The is the total LOE nm reduction kind of the you know another 3% to 5%. In addition to the original 2% to 3% that you had targeted that kind of the right way or or maybe it's easier. If we just put this in dollar millions in kind of go from there.
Yes, I think percentage wise, you're pretty much on it yeah, so we'd assume 2% to 3% than if you add the 70 to 80 million on top of that.
Yeah, you're in the ballpark.
Got it.
Okay and you think.
Moving to 2021 and beyond kind of a permanent reduction and animal, but obviously it back to that that customer overtime.
I'm sorry, you were very muffled, there Michael I did not get your question.
Okay, and you assume some of that as permanent that incremental at William reduction, meaning that it would last in the 2021 and beyond.
Yes, that's exactly correct.
Got it Okay got it. Thank you Gail much appreciated I hope, you're bucks or planes and.
Yeah. Thank you Michael.
Your last question comes from the line of Paul Patterson with Glenrock. Your line is open.
Oh good afternoon, what are you doing what's your what's you up to the anything good Paul.
Good.
But.
But just to sort of follow up on a few questions. Your you said that the you owned them savings.
A big chunk of them or sustainable could you give a little bit more of a qualification on that.
Or if you can't can you sort of qualify.
Give us a sense as to where you're seeing this.
The savings longer term the longer term stuff.
Well.
It's a little bit early to give you.
Precise answer.
The the 70 to 80 million of cost savings that we expect to achieve this year on what on exactly what amount of that as sustainable, but I will tell you.
That.
I think this is the case for many of our brother and across the industry now that we're having to operate as remotely as we are and we're doing very well I mean, as Kevin mentioned earlier.
Our actually our customer satisfaction levels are the highest I've ever seen and we generally have very high customer satisfaction I think where we are folks have managed to operate very effectively in this environment.
So for example.
And we will be shaking this all out as we continue to watch and observe over the course of the rest of the year, but I'll give you. One specific example, we're not going to need as many physical facilities as we once thought we would need.
And there were some expansion plans.
On the drawing board I don't think we're going to neither are I don't believe we're going to need all of them, maybe none of them.
But as an example, so we'll see how how this goes but I would just point you back to our track record I mentioned earlier more than a 7% decline in sustainable on M. reduction 19 over 18.
2% to 3% that we believe was going to be permanent this year and I think it'll be more than that.
Okay.
And then.
So following up on the question about Illinois, Indeed, the pipe replacement program.
No there was a resolution that pass the city Council.
And do you think that the changes that you're talking about.
We will ameliorate there I guess their concerns.
As articulated I guess in this resolution if all what I'm, saying I mean like.
How should we think about about that resolution I guess.
Well. This was the same resolution that was passed a year ago. So now we're we're into the second year of the same resolution for those of you are not familiar with the resolution basically asked the governor to look into the cost and effectiveness of the pipe replacement program.
The major concern as we understand that from a few of the council members is affordability.
There is a very very good answer to that and that is that if you look at customer bills customer gas bills in Illinois.
Starting in the year that this legislation was passed that incentivize utilities in Illinois to accelerate the pipe replacement program customer bills are actually down.
So we have not created a.
An affordability crisis in any way shape or form.
Once completed and it's going to take a while the system will be more efficient that should be helpful. In terms of customer bills and in addition to that Oh, we have just provided to the Illinois Commerce Commission.
Independent study from a worldwide nationally and internationally known engineering firm that the commission asked us to basically take a hard look at the execution of our pipe replacement program.
So we've just presented the roots called the key for study. If any are you may want to take a look at that it should be it should be on the on a Commerce Commission a website.
For a summary of it certainly should be but the bottom line is the key for study indicated that the aging pipes underneath Chicago are have a useful life, even shorter than what we had anticipated.
The average useful life remaining according to the key for study is 15 years, so Keith or actually recommended in its study to the Illinois Commerce Commission that we accelerated the work to an even greater degree than we're trying to do now I don't know practically other than a pandemic, where you can do a lot more working Lou I don't know price.
The goal.
Significant additional acceleration is the long story short, there's even more evidence now of the need for the program number one.
Verified by outside International Engineering firm number two there is no heating cost crisis compared to win this program started.
Excellent. Thanks, so much for clarifying that then and then just on I know you get the deferral.
Back to Wisconsin, He gets the deferral on the electric and gas side, there, but due to covert and everything but could you just give us a flavor as to what your actual experiences in terms of people paying their bills on time.
Over the last month, or so or do you have any trends or any data you could share with us in terms of.
What you're seeing in terms of.
In terms of Bill pay.
Paul really nothing yet in that remember.
We are under on residential disconnect moratorium.
All of our.
In all of our cold weather states that usually runs through April 15.
So we wouldn't have seen any major difference in terms of collectability or disconnections.
Through tax day normal tax day anyway. So we're really only looking at about a two week period. Since then and I don't think the data Scott it's meaningful about two weeks, it's pretty early yet.
Normally we see a little reduction in those remaining two weeks, we saw a small increase but it's really early yet.
So we're watching it very closely like everything else.
Awesome great. Thanks, so much guys thinking there.
You're welcome you to Paul Thank you very much.
Well folks.
We really appreciate your questions that concludes our conference call for today, if you have any additional come to us [laughter] additional questions.
I cannot talk anymore, you wore me out here feel free to contact Westrock.
At our Investor Relations group and she can be reached four one for two to one or six threenine, thanks, everybody stay safe and take care.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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